Aggressive Tactics Proved Too Risky For These Generic Drugmakers

Teva Pharmaceutical (NYSE:TEVA) and Sun Pharmaceutical made a surprising decision in late 2007: sell a low-cost generic version of Protonix before the key U.S. patent expired. This move was a bold example of the aggressive tactics used by generic-drug manufacturers to bring lower-cost copies of blockbuster brand-name drugs to consumers quickly.

Generic competition took a large bite out of sales and profits for medication’s marketer at the time, Wyeth. Sales of the branded Protonix, a treatment for erosion and ulceration of the esophagus caused by gastroesophageal reflux disease, dropped 80 percent to $395 million in 2008. This massive revenue loss contributed to the company’s decision to lay off thousands of employees. However, the patent-infringement lawsuit was filed much earlier.

Teva challenged the validity of the Protonix patent in seeking approval from the United States Food and Drug Administration for a generic version, and Wyeth attempted to block Teva’s product as early as 2004. Pfizer (NYSE:PFE) acquired Wyeth in 2009 and inherited Protonix and its accompanying legal problems. Wyeth had licensed the patent for Protonix from Altana Pharma, which now part of Takeda Pharmaceutical.

In 2010, a jury upheld the patent’s validity and decided Teva’s generic Protonix infringed that patent. To finally bring dispute to an end, the two generic-drug manufacturers agreed Wednesday to pay $2.15 billion in patent-infringement damages, ending the trial that began last week in federal court in New Jersey. Of the total amount, 64 percent of which will go to Pfizer, Teva will pay 1.6 billion and Sun will pay $550 million.

This settlement is one of the highest tabs for damages from a so-called “at-risk” launch of a generic drug. An at-risk launch refers to when a generic drug manufacturer that has been sued for patent infringement begins selling the generic product even before the patent litigation is resolved. The risk in such action is obvious; if the patent for the branded drug is upheld, the generic drug maker is liable for damages for lost profits by the branded drug’s manufacturer. In this case, the damages were huge, surpassing the $442 million Apotex paid Bristol-Myers Squibb (NYSE:BMY) and Sanofi (NYSE:SNY) last year for selling generic copies of anticlotting drug Plavix in 2006.

The Protonix patent exclusivity expired in January 2011, and Pfizer’s Wyeth unit is still trying to recover lost profits. But Pfizer is happy with the outcome. “We are pleased with today’s settlement, which recognizes the validity and value of the innovation that led to Protonix,” Amy W. Schulman, Pfizer’s general counsel, said in a Wednesday press release.